First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
Continue reading for our First Day team's analysis of the White Stallion chapter 11 filing and Request a Trial for access to the above documents and analysis as well as our coverage of thousands of other stressed/distressed debt situations.
|White Stallion Energy is a thermal coal mining company that operated six currently-idled surface mines in Indiana and Illinois
|Seeks to sell substantially all of its assets to its prepetition term loan lenders (subject to higher/better offers) after its “expected entry” into “critical” long-term or short-term supply agreements with certain key customers
|Prepetition term loan lenders would also provide $12.6 million in DIP financing (including $4 million of new money) to fund the chapter 11 case and sale efforts and refinance certain obligations under prepetition bridge loans
|Sale milestones contained in the DIP motion provide for sale consummation by Jan. 15
White Stallion Energy, LLC, an Evansville, Ind.-based coal mining company, filed for chapter 11 protection Wednesday night in the Bankruptcy Court for the District of Delaware, along with various affiliates. The company’s mines were recently idled, and the debtors say that they expect all mining operations to remain idled during the pendency of the chapter 11 cases. According to the first day declaration of White Stallion COO David Beckman, a senior managing director at FTI, the debtors enter chapter 11 “facing a severe, unexpected cash shortage brought on by, among other things, a steep decline in the broader coal market, which was exacerbated by the outbreak of the novel coronavirus pandemic, and outsized debt obligations that hindered the Debtors’ ability to perform in an industry that typically requires substantial capital expenditures to maintain equipment and operations.”
The debtors’ prepetition term loan lenders have agreed to provide $12.6 million of DIP financing, including $4 million of new money, to (i) fund the company through the chapter 11 cases and (ii) support a 363 sale process of substantially all of the debtors’ assets to the prepetition term loan lenders and (iii) refinance certain obligations under prepetition bridge loans.
“Given the speed and efficiency required in conducting a sale process for the assets of a mostly idled coal-mining business,” Beckman says, the debtors anticipate that the sale process would take place on an expedited timeline. In accordance with various milestones underlying the proposed DIP financing, the debtors say that they intend to (i) file a motion seeking approval of the proposed sale no later than Dec. 14, (ii) seek entry of an order approving the sale no later than Jan. 8 and (iii) consummate the sale prior to Jan. 15. Beckman adds that the debtors “believe that the proposed sale transaction represents the only viable option for preserving and maximizing the value of the Company.”
The first day hearing is set for Friday, Dec. 4, at 2 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes $103.9 million of secured debt, as follows:
The term loan facility is secured by a lien on substantially all of the debtors’ assets. Pursuant to an October 2018 intercreditor agreement by and between the prepetition term loan agent, the prepetition ABL lender and the debtors, the obligations under the term loan facility are secured by (i) a first-priority lien on the term loan priority collateral (as defined in the intercreditor agreement), which includes the debtors’ equipment, real property, coal and other mineral rights (prior to extraction) and the proceeds of the foregoing, and (ii) a second-priority lien, subject to the interests of the prepetition ABL lender, on the debtors’ other assets. The ABL facility is secured by a lien on substantially all of the debtors’ assets. Pursuant to the intercreditor agreement, the obligations under the ABL facility are secured by (i) a first-priority lien on the “ABL Priority Collateral (as defined in the Intercreditor Agreement),” which includes the debtors’ inventory, as-extracted coal and other minerals, receivables, cash, deposit accounts, intangibles and proceeds of the foregoing, and (ii) a second-priority lien, subject to the interests of the prepetition term loan secured parties, on the debtors’ other assets.
Under a real estate installment purchase agreement, debtor Solar Resources Mining, as buyer, is obligated to make 60 monthly payments of $45,396 to Thomas S. Boyd, as seller, commencing on Jan. 2, 2020. There is approximately $2 million in principal outstanding under this agreement. The company also has approximately $51.1 million in surety bonds outstanding to secure reclamation obligations and owes $4.8 million in the aggregate on account of past due equipment lease obligations.
The debtors also received a $10 million unsecured PPP loan.
White Stallion is privately held and none of its equity interests are traded on public exchanges. The membership interests of White Stallion Holdings are majority-owned by non-debtor American Patriot Energy, LLC.
The debtors are represented by Paul Hastings and Young Conaway Stargatt & Taylor as co-counsel and FTI Consulting as financial advisor. Prime Clerk is the claims agent. The jointly administered case number is 20-13037. The case has been assigned to Judge Laurie Selber Silverstein.
White Stallion was founded in 2010 to develop and operate surface mining complexes in Indiana and Illinois and subsequently grew through a series of strategic acquisitions. Between 2016 and 2018, WSE acquired Vigo Coal Company, Alcoa’s Friendsville Mine in Illinois, Solar Sources Mining and a 51% majority stake in the Eagle River Mine. Through these acquisitions the company grew rapidly from 2016, reaching annual sales of approximately 7 million tons of coal, including a large volume of ultra-low chlorine coal, and approximately $26 million of EBITDA during 2019.
Prior to the petition date, the debtors operated six high-quality, low-cost thermal surface mines in Indiana and Illinois with approximately 200 million tons of demonstrated reserves.
The debtors say that their “significant footprint in Indiana, where four of the six coal mines operated by the Company are located, provides access to a unique market with significant opportunities,” noting that Indiana is a “singular market with stable coal burn rates and the Debtors have a long, demonstrated, and successful track record in the Indiana coal industry,” and utility customers in Indiana are “largely captive to local coal producers due to proximity of the mines to power plants, providing a significant delivered cost advantage.” According to the first day declaration, Indiana coal demands continue to experience stable burn rates of more than 30 million tons per year, and the Indiana Utility Regulatory commission has estimated that coal will account for a majority of base power generation for the foreseeable future. However, local coal production levels in Indiana have declined by approximately 20 million tons during 2020, “creating an opportunity for the Company and other local coal producers to meet the consistently high level of demand,” the debtors add.
A map of the debtors’ mining assets, along with their proximity to coal-fired power plants, is below:
White Stallion pays royalties to certain land owners for the right to perform current and/or future mining activities in the normal course of business. The debtors’ customers are primarily large utility and industrial companies. The largest customer, accounting for approximately 70% of cash receipts in the nine months leading up to the petition date, is Duke Energy Indiana, which operates coal-fired power generation facilities in Indiana and across the country.
Prepetition, the company had approximately 260 employees, all of whom were full-time and none of whom were subject to collective bargaining agreements. “Due to the severe liquidity constraints facing the Company prior to the commencement of these chapter 11 cases, on December 2, 2020, the Debtors made the very difficult decision to terminate all of their employees just prior to the Petition Date, with the hopes that many of them could be rehired in the event of a successful sale of the Company’s assets.” The debtors say that they expect to rehire “up to 24 employees, consisting of a lean corporate-level staff to carry the Debtors through the anticipated chapter 11 sale process and a limited number of mine-level employees to meet certain ongoing shipping operations primarily for the benefit of the Debtors’ key customer, Duke.”
The company’s corporate organizational structure is shown below:
The debtor's largest unsecured creditors are listed below:
|10 Largest Unsecured Creditors
|| Claim Type
|MacAllister Machinery Co.,Inc
|Old National Bank
|Caterpillar Financial Ser Corp
|Whayne Supply Co.
|Hawkins Bailey WHSE Inc
|Rudd Equipment Co
|Cummins Sales and Service
The case representatives are as follows:
||M. Blake Cleary
Stragatt & Taylor
|Jaime Luton Chapman
|S. Alexander Faris
||Chris L. Dickerson
|Nathan S. Gimpel
|Todd M. Schwartz
||Palo Alto, Calif.
|David J. Beckman
|Debtors' Claims Agent
|Co-Counsel to the
|Katherine A. McLendon
Co-Counsel to the
|Kevin W. Barrett
||Bailey & Glasser
|Maggie B. Burrus
|David A. Felice
|Brian A. Glasser
|United States Trustee
||Office of the U.S.
DIP Financing Motion
White Stallion’s DIP motion requests at least $12.6 million in DIP financing from certain of its prepetition term loan lenders, including Riverstone Credit Partners L.P., Summit Partners Credit Fund II, L.P., Summit Partners Credit Fund B-2, L.P., Summit Partners Credit Offshore Intermediate Fund II, L.P., Summit Investors Credit II, LLC and Summit Investors Credit II (UK), L.P., with Riverstone Credit Management serving as DIP agent.
The proposed DIP facility consists of (i) $4 million of new money on an interim basis, (ii) a dollar-for-dollar rollup of approximately $8.6 million of prepetition bridge loans on an interim basis, plus (iii) “additional amounts of outstanding loans and other obligations to the extent approved by the Final DIP Order and subject to notice requesting such additional amounts, if any, being filed with the Bankruptcy Court no later than seven days prior to the hearing on the Final DIP Order.”
The motion says that because the DIP Facility is being provided by certain of the debtors’ prepetition lenders, “the Debtors are avoiding a potentially value-destructive litigation priming fight with a third-party lender seeking to prime the Debtors’ largest contingent of prepetition secured creditors.”
The debtors also request the use of cash collateral, asserting that they “require immediate access to liquidity to ensure that they are able to preserve the value of their estates and effectuate a going-concern sale for the benefit of all parties in interest.” As of the petition date, “the Debtors’ total cash balance is approximately in available cash, after accounting for segregated payroll funds, which is insufficient to continue paying their debts as they come due.”
The DIP financing bears interest at 12% per annum, payable monthly in kind, plus an additional 2% for the default interest rate. The DIP loan would mature on the earlier of Jan. 15, 2021, “and such other date acceptable to the DIP Lenders in their sole discretion.”
The DIP proceeds may be used “to fund costs and expenses approved by the DIP Lenders and (b) to pay the professional fees and expenses of legal and other advisors to the DIP Agent and the DIP Lenders in connection with the Prepetition Credit Agreement and, as set forth in Fees and Expenses and Indemnification, with the DIP Facility and the Chapter 11 Cases, whether incurred pre-petition or post-petition.” According to the first day declaration, the DIP financing would (i) fund the company through the chapter 11 cases and (ii) support a 363 sale process of substantially all of the debtors’ assets to the prepetition term loan lenders and (iii) refinance certain obligations under prepetition bridge loans.
To secure the DIP financing, the debtors propose to grant the DIP secured parties: (i) first liens on unencumbered property; (ii) priming liens upon all pre and postpetition property of the debtors and all proceeds thereof (including, without limitation, cash collateral) of the same type as the term loan priority collateral, subject to any “Permitted Prior Liens”; and (iii) junior liens upon all property not described in (i) and (ii) that is “(a) subject to valid, perfected, and unavoidable liens in existence immediately prior to the Petition Date, (b) subject to valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected subsequent to the Petition Date as permitted by section 546(b) of the Bankruptcy Code or (c) ABL Priority Collateral, which security interests and liens in favor of the DIP Secured Parties are junior to such valid, perfected, and unavoidable liens.” Pursuant to the final order, the DIP liens would attach to the proceeds of avoidance actions.
The facility includes a 2% DIP facility exit fee payable to the DIP agent.
For adequate protection to the secured parties, the DIP motion would grant (i) replacement liens (junior only to the DIP liens, the liens on the ABL priority collateral in favor of the ABL agent and the carveout); (ii) superpriority expense claims; (iii) payment of (a) all accrued and unpaid fees and disbursements owing to the prepetition secured parties under the prepetition credit agreement and incurred prior to the petition date, and (b) out-of-pocket disbursements of the prepetition secured parties chapter 11 professionals; and (iv) financial reporting.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c). The debtors also seek to waive the “equities of the case” exception under section 552(b) with respect to the DIP collateral pursuant to the interim order and with respect to the prepetition collateral pursuant to the final order.
The carveout for professional fees is $200,000.
The proposed budget for the use of the DIP facility is HERE
According to the summary of material terms in the DIP motion, the DIP financing is subject to the following milestones:
- Duke supply agreement term sheet: provided to the DIP lenders by Dec. 4
- Agreed upon Duke supply agreement term sheet: provided to the DIP lenders by Dec. 11
- Sale motion: filed by Dec. 14
- Supply agreement commitment by Duke: signed by Dec. 28
- Sale order: entered by Jan. 8, 2021
- Sale closing: “as soon as reasonably practicable after entry of the sale order”
The debtors also filed various standard first day motions, including the following:
Prepetition wages and accrued unpaid PTO owed to two employees are above the $13,650 priority wage cap imposed by section 507(a)(4) and 507(a)(5) in the amounts of $92,000 and $24,840.